New Mastercard Requirements for Subscription and Negative Option Billing Models

Mastercard recently announced new requirements for merchants using a subscription billing model or negative option model, or both.  The new standards focus on disclosures made to consumers at the point of payment; providing adequate confirmation, notices, and billing receipts; and affording customers an online or electronic cancellation method.  Requirements relating to point of payment disclosures become effective on September 22, 2022.  The other requirements will become effective much sooner, on March 22, 2022.  As always, reconciling card brand requirements with current federal and state legal requirements and law enforcement priorities will take particular care and attention, particularly as laws in California and other states continue to evolve.

The Mastercard updates, like those imposed by other card brands, are intended to reduce complaints and chargebacks from consumers who might not understand they were enrolled in an automatic renewal subscription or negative option program (or who do not understand the billing terms), forgot they enrolled, or have difficulty canceling their subscriptions.

As we summarize below, the new Mastercard requirements apply to merchants using subscription/recurring billing models, including programs that charge a consumer for goods or services on a prearranged schedule (such as streaming video services, membership clubs, and software licenses).  Mastercard included certain additional requirements for negative option programs, where the merchant offers an initial free or discounted trial period of a subscription before automatically enrolling the consumer into the subscription, and the consumer must take some action to cancel before the end of the trial to avoid continuing with the subscription.

• Disclosures: Prior to enrolling consumers in a subscription, merchants must, at the point of payment, disclose the subscription terms and obtain the customer’s affirmative acceptance of the terms. For all subscription/recurring billing merchants, this disclosure must include both the price that will be billed and the frequency of billing.
• Negative Option Disclosures: Merchants must disclose the terms of the trial (including any initial charges), the length of the trial period, and the price and frequency of the subsequent subscription. These disclosures must appear at “point of payment,” which includes the screen where consumers enter their card information or any screen that displays a summary of the order (such as a shopping cart).  Requiring the consumer to click on a link, expand a message box, or scroll down the page to see the terms will not satisfy the requirements.
• Enrollment Confirmation: Immediately following enrollment, merchants will need to send a confirmation of the consumer’s enrollment by email or any other electronic method. This confirmation must include the terms of the subscription (including the terms of a trial, if applicable) and clear instructions on how the consumer can cancel the subscription.
• Receipts. After each billing for the subscription, merchants must send a receipt for the billing by email or any other electronic method.  In addition to the transaction details, this receipt must include clear instructions on how the consumer can cancel the subscription.
• Merchants using negative option billing models or subscription/recurring billing models with periods between billing of six months or longer will need to send subscription reminders to consumers. In both cases, the notifications must be sent between three and seven days before the card is automatically charged.  The notifications may be sent by email or any other electronic method.
  • For negative option programs, these notifications must: be sent before the consumer is automatically enrolled in the full plan, inform the consumer that the subscription plan will commence at the end of the trial period unless canceled before the stated date, and contain the basic terms of the subscription and instructions on how to cancel. However, this requirement will not apply to high-risk negative option billing merchants that offer a free or low-cost trial period of a physical good—such as dietary supplements and healthcare products—and automatically enroll the cardholder into a recurring billing/subscription plan at the end of the trial period.
  • Merchants offering subscription plans with six months or more between billing dates must provide a notification containing the basic terms of the subscription and instructions on how to cancel the subscription prior to each billing date.
• Electronic Cancellation Method. Merchants must provide an online or electronic cancellation method to subscribers. This method should be “similar to unsubscribing from email messages or any other electronic method.” 

Although Mastercard’s bulletin provides example of how to comply with the new standards, including example disclosures, it is not clear whether those would be found sufficient by a regulator or court, particularly given the influx of litigation and new laws in this area.  For example, the federal Restore Online Shoppers’ Confidence Act (ROSCA) is aggressively enforced by the Federal Trade Commission (FTC), and California’s Autorenewal Task Force and class action plaintiffs target companies under California’s autorenewal law.  As a result, affected merchants should review their disclosure, receipt, notification, and cancellation policies to align with MasterCard’s updated standards and the changing legal landscape.  Payment processors and acquiring banks, too, should be sure to understand what their merchants should be doing and make any necessary adjustments to their oversight procedures to account for the new requirements.

Venable attorneys have substantial experience advising merchants, banks, and payment processors on these issues and defending companies before regulators and class action plaintiffs.  You can learn more about the changing landscape here. Contact the authors with any questions about the updated standards, new laws, and recent regulatory and litigation trends affecting negative option and subscription programs.

* The authors would like to thank Law Clerk Connor Webb for his assistance in writing this article.